Introduction
- Finance Minister Nirmala Sitharaman presented the India Economic Survey in Parliament, offering a detailed analysis of India’s economic performance and providing recommendations for future policies.
- The India Economic Survey is an annual document presented by the Government of India’s Ministry of Finance.
- It is typically released a day before the Union Budget.
- It provides a comprehensive review of the country’s economic performance over the past year.
- The survey also offers insights and recommendations for future economic policies and highlights the key challenges and opportunities facing the economy.
State of the Economy: Steady Progress
Global Growth Variations:
- According to the April World Economic Outlook, global economic growth was 3.2% in 2023. However, significant differences emerged among countries due to varying domestic structural issues, geopolitical conflicts, and differing impacts of monetary policy tightening. For example, countries with strong structural reforms and stable geopolitical environments showed better growth rates compared to those facing internal and external challenges.
India’s Economic Resilience:
- India Economic Survey continued its growth momentum from FY23 into FY24, overcoming numerous external challenges. The real GDP in FY24 was 20% higher than its FY20 level, a notable achievement among major economies. This resilience was supported by strong macroeconomic stability, which mitigated the impact of global economic disruptions, such as supply chain bottlenecks and geopolitical tensions.
Robust GDP Growth:
- India’s real GDP grew by 8.2% in FY24, consistently exceeding the 8% mark in three out of four quarters. The India Economic Survey projects a conservative growth estimate of 6.5-7% for FY25, acknowledging higher market expectations. This growth was driven by robust domestic consumption, government spending, and private sector investments.
Inflation Control:
- Through effective administrative and monetary policies, retail inflation was reduced from 6.7% in FY23 to 5.4% in FY24. This was achieved by controlling food and fuel prices, and managing supply chain disruptions. For instance, the government’s intervention in fuel prices and subsidies on essential commodities helped keep inflation in check.
Improved CAD:
- The Current Account Deficit (CAD) improved significantly, standing at 0.7% of GDP in FY24 compared to 2.0% in FY23. This improvement was due to a combination of higher exports, increased remittances, and prudent import management.
Tax Collection:
- Direct taxes contributed 55% of the total tax revenue, while indirect taxes accounted for 45%. The balanced tax revenue distribution indicates effective tax policies and compliance measures, supporting India Economic Survey stability and growth.
Monetary Management and Financial Stability
Stable Inflation:
- The Reserve Bank of India (RBI) maintained a steady policy repo rate of 6.5% throughout FY24, effectively aligning inflation with targets while supporting economic growth. The Monetary Policy Committee (MPC) played a crucial role in balancing inflation control and growth stimulation.
Banking Sector Performance:
- The banking sector exhibited robust health with double-digit growth in bank credit disbursal, reaching ₹164.3 lakh crore by March 2024, a 20.2% increase. The gross and net non-performing assets (NPAs) reached multi-year lows, reflecting improved asset quality and effective regulatory measures. The sector’s stability was further evidenced by enhanced capital adequacy and profitability.
Financial Sector Growth:
- India’s stock market capitalization has surged, making its market capitalization to GDP ratio the fifth largest globally. Primary capital markets facilitated capital formation of ₹10.9 lakh crore in FY24, significantly contributing to economic growth. This growth was driven by strong investor confidence and regulatory reforms enhancing market efficiency.
Digital Financial Inclusion:
- Financial inclusion remains a priority, with digital financial inclusion identified as the next big challenge. Initiatives like the Pradhan Mantri Jan Dhan Yojana (PMJDY) and the Unified Payments Interface (UPI) have significantly improved access to financial services, promoting economic empowerment and reducing inequality.
Insurance and Microfinance Growth:
- India is poised to become one of the fastest-growing insurance markets, supported by increasing awareness and penetration. The microfinance sector, second only to China, has played a vital role in financial inclusion, providing credit access to underserved populations and supporting entrepreneurship.
Prices and Inflation
Retail Inflation Management:
- Timely government interventions and RBI measures maintained retail inflation at 5.4%, the lowest since the pandemic. Policies such as fuel price reductions and subsidies on essential commodities helped manage inflation. For instance, LPG, petrol, and diesel price cuts kept fuel inflation low, contributing to overall inflation control.
Food Inflation Challenges:
- Food inflation increased from 6.6% in FY23 to 7.5% in FY24 due to extreme weather events and crop damage. The government’s dynamic stock management, open market operations, and subsidized provision of essential food items helped mitigate the impact. Initiatives like the PM-KISAN scheme provided direct income support to farmers, stabilizing food prices.
Inflation Projections:
- The RBI projects inflation to decrease to 4.5% in FY25 and 4.1% in FY26, assuming normal monsoon conditions and no significant external shocks. The IMF forecasts similar trends, highlighting India’s effective inflation management policies.
External Sector: Stability Amidst Challenges
Export Growth:
- India’s share in global goods exports increased to 1.8%, with services exports reaching USD 341.1 billion in FY24, driven by IT/software services. This growth reflects India’s competitive advantage in technology and business services, supported by a skilled workforce and favorable regulatory environment.
Remittances:
- India continued to be the top remittance recipient globally, with remittances reaching USD 120 billion in 2023. This inflow significantly contributed to the external sector’s stability, supporting household consumption and investment.
Sustainable External Debt:
- India’s external debt to GDP ratio stood at 18.7% at the end of March 2024, reflecting sustainable debt levels. Prudent debt management policies and a strong foreign exchange reserve position have contributed to external sector stability.
Medium-Term Outlook: Growth Strategy for New India
Amrit Kaal’s Growth Strategy:
- The growth strategy focuses on six key areas: boosting private investment, expanding MSMEs, leveraging agriculture as a growth engine, financing green transitions, bridging the education-employment gap, and building state capacities. This tripartite compact between the Union Government, State Governments, and the private sector aims to achieve sustained high growth rates.
Policy Focus Areas:
- Short to medium-term policy priorities include job and skill creation, maximizing agricultural potential, addressing MSME bottlenecks, managing green transitions, dealing with geopolitical challenges, deepening the corporate bond market, and tackling inequality. For example, skill development programs aim to equip the workforce with relevant skills for emerging industries.
Climate Change and Energy Transition
Climate Action Recognition:
- India’s efforts to meet climate commitments have been recognized, with the country aligning with the 2-degree centigrade warming target. The GDP grew at a 7% CAGR between 2005 and 2019, while emissions grew at 4% CAGR, highlighting decoupling of economic growth from emissions.
Renewable Energy and Efficiency:
- India’s renewable energy capacity reached 45.4% of total installed capacity by May 2024. Initiatives like the International Solar Alliance and enhanced energy efficiency measures have contributed to this progress. The emission intensity of GDP has reduced by 33% from 2005 levels, showcasing India’s commitment to sustainable growth.
Social Sector: Empowering Benefits
Welfare Approach:
- Digitization in healthcare, education, and governance has amplified the impact of welfare spending. Programs like Ayushman Bharat have significantly increased access to healthcare services, with over 34.7 crore cards issued and 7.37 crore hospital admissions covered.
Gini Coefficient Decline:
- Inequality has reduced, with the rural Gini coefficient declining from 0.283 to 0.266 and the urban coefficient from 0.363 to 0.314. This improvement reflects successful poverty alleviation and income distribution policies.
Healthcare and Nutrition:
- The “Poshan Bhi Padhai Bhi” program aims to develop a high-quality preschool network at Anganwadi Centres, integrating nutrition and early childhood education. Mental health coverage under Ayushman Bharat – PMJAY has expanded to include 22 mental disorders, addressing the comprehensive healthcare needs of the population.
Education and R&D:
- Initiatives like the Vidyanjali program have enhanced educational experiences for over 1.44 crore students through community engagement. Higher education enrolment, particularly among SC, ST, and OBC categories, has seen significant growth. India’s R&D landscape is improving, with nearly one lakh patents granted in FY24, up from less than 25,000 in FY20.
Employment and Skill Development
Unemployment Rate Decline:
- The unemployment rate decreased to 3.2% in 2022-23, with youth unemployment (ages 15-29) falling from 17.8% in 2017-18 to 10% in 2022-23. Female labor force participation has been rising for six consecutive years, reflecting improved employment opportunities for women.
Future Job Needs:
- To accommodate the rising workforce, the economy needs to generate nearly 78.5 lakh jobs annually in the non-farm sector until 2030. By 2050, the workforce is expected to grow to 64.7 crore from 50.7 crore in 2022, necessitating robust job creation strategies.
Agriculture and Food Management
Agriculture Growth:
- The agriculture and allied sectors grew at an average annual rate of 4.18%, with total credit disbursed to agriculture amounting to ₹22.84 lakh crore as of January 31, 2024. The Per Drop More Crop (PDMC) initiative has covered 90 lakh hectares under micro-irrigation since 2015-16, enhancing water use efficiency and productivity.
R&D Investment:
- Every rupee invested in agricultural research yields a payoff of ₹13.85, emphasizing the importance of research and development in driving agricultural growth and innovation.
Read also: Karnataka’s Local Reservation Bill: A Comprehensive Review | UPSC
Industry: Focus on MSMEs
Industrial Growth:
- The industrial sector grew by 9.5% in FY24, with key drivers including chemicals, pharmaceuticals, and machinery. The manufacturing sector achieved an average annual growth rate of 5.2% over the last decade, reflecting resilience and adaptability.
Pharmaceutical and Clothing Industries:
- India’s pharmaceutical market is the third-largest globally by volume, valued at USD 50 billion. The country is also the second-largest clothing manufacturer, with significant contributions to global exports.
PLI Scheme Impact
- The Production Linked Incentive (PLI) scheme attracted over ₹1.28 lakh crore in investments, leading to production/sales of ₹10.8 lakh crore and generating over ₹8.5 lakh in employment (direct and indirect).
Services Sector: Driving Growth
Service Sector Contribution:
- The services sector now accounts for 55% of Gross Value Added (GVA), with a substantial number of active companies. As of March 31, 2024, there were 16,91,495 active companies in India, highlighting the sector’s vitality.
Sector Highlights:
- Freight revenue grew by 5.3% in FY24, while the tourism industry saw a 43.5% increase in foreign tourist arrivals. Residential real estate sales reached their highest level since 2013, with 4.1 lakh units sold in the top eight cities. The number of Global Capability Centres (GCCs) increased from 1,000 in FY15 to over 1,580 by FY23. The e-commerce industry is projected to cross USD 350 billion by 2030, driven by rising internet penetration and consumer demand.
Infrastructure: Enhancing Growth Potential
Public Investment:
- Significant public sector investments have funded large-scale infrastructure projects, including highway construction, railway expansion, and airport terminal operations. The pace of National Highway construction increased nearly threefold from 11.7 km/day in FY14 to 34 km/day by FY24.
Railway and Airport Infrastructure:
- Capital expenditure on Railways increased by 77% over the past five years, with investments in new lines, gauge conversions, and doubling projects. In FY24, new terminal buildings at 21 airports became operational, increasing passenger handling capacity by approximately 62 million per annum.
Climate Change: India’s Perspective
Critique of Global Strategies:
- Current global strategies for climate change are flawed, focusing on overconsumption rather than sustainable practices. A one-size-fits-all approach is ineffective; developing countries need the freedom to choose their pathways.
Mission LiFE:
- Emphasizes human-nature harmony and mindful consumption to address climate change. Promoting traditional multi-generational households can create sustainable housing pathways, aligning with India’s ethos of a harmonious relationship with nature.
